BHP cuts 170 jobs as part of efficiency drive

Updated
June 09, 2014 20:28:00

BHP Billiton is sacking another 170 workers in the Pilbara as falling iron ore prices force the global miner to find ways to run its business more cheaply. It's cutting the jobs at the Mount Whaleback iron ore pit, the biggest open-cut iron ore mine in the world. BHP says it is all in the name of boosting efficiency, but the mining union argues the company is still earning strong profits that should be shared with workers

MARK COLVIN: A new indication of the mining downturn: BHP Billiton is sacking 170 workers in the Pilbara.

The company says falling iron ore prices are the reason - it has to find ways to run its business more cheaply.

It's cutting the jobs at the biggest open-cut iron ore mine in the world, Mount Whaleback.

BHP says it's all in the name of boosting efficiency, but the mining union argues that the company's still earning strong profits and should share them with workers.

Business reporter Pat McGrath

PAT MCGRATH: BHP has conducted an efficiency review of its Mount Whaleback mine. Its conclusion is that the 46-year-old mine can do without 170 of its workers.

It comes after BHP last week sacked 100 staff from its Perth offices.

The company has turned down PM's request for an interview, but in a statement says it will try to find ways to redeploy workers.

BHP says it regularly undertakes reviews to ensure that its iron business is running efficiently, and this includes reviewing the size and structure of its workforce.

And independent investment analyst Peter Strachan expects efficiency reviews to become more regular at BHP and other miners as the global iron ore price continues to fall.

PETER STRACHAN: The iron ore price over the year so far has fallen from highs of around $140 a tonne, that's for the high grade product delivered into Asia into China, and those prices as we know have fallen back to around $92 recently, finding a little bit of support at that level. But that's a big fall and clearly puts pressure on cash flows, even for the low cost big boys like BHP and Rio Tinto.

The focus is turning really laser like on extracting efficiencies from these operations.

PAT MCGRATH: And that could mean more job cuts and more cost savings to come.

PETER STRACHAN: Looking at how many people do we need to do a job, who are our suppliers, safety gear, raw materials, you know, other sorts of services.

PAT MCGRATH: So wouldn't they have been doing this in the good times, though, anyway? Surely a profitable business would always be looking to find ways to cut its costs?

PETER STRACHAN: No. I think at the time of the big expansion, it was really a matter of just focusing on getting these things built.

They really took their eye of the ball in terms of cost, I'd have to say. They were just really scrambling. They were making so much money. With the iron ore price peaking at over $160, $170 a tonne, it didn't matter if an extra $2 or $3 a tonne went on the cost because of, you know, the cost of an extra fitter or something to do the work.

PAT MCGRATH: But with the global iron ore price now at about $94 a tonne, Peter Strachan says it does matter, and BHP, Rio Tinto, Fortescue and others are finding new strategies to cut labour costs.

PETER STRACHAN: And I know anecdotally people who were working two years ago in industry, say in software design and so forth, doing specific projects that might have been six or 12 months duration, and they were being paid $140 an hour. And one particular individual went away on holiday, as you would, and came back and sought a similar job, so he's now re-employed doing exactly the same thing, he's getting $70 an hour.PAT MCGRATH: The CFMEU (Construction, Forestry, Mining and Energy Union) says it only has a small number of members working at Mount Whaleback, because many are on high wage, individually negotiated contracts.

Gary Wood is secretary of the union's mining and energy division in Western Australia, and he says BHP remains highly profitable despite the iron ore price slump.

GARY WOOD: The fluctuations would indicate that the work still was there. They were ramping up their sales processes, and they'd have the ability to do that, to continue to do that and ride out the market. To take these short-term, we see there's most probably an element of trying to cut further beyond under the back of reduction in price of iron ore, but looking at the longer-term margins in regard of profits going forward.

PAT MCGRATH: But this is a company that wants to make profits and sustain the kind of profits it's been seeing, so surely in that environment you'd have to be preparing for more job cuts wouldn't you?

GARY WOOD: Well if there were to be, but when you're making - a company, their overall return on capital is around 22 per cent, you know, very healthy profit margin.